Weak Jobs Data Sparks QE3 Hope SATURDAY, APRIL 7, 2012.
The selloffs that hit both stocks and Treasuries at the beginning of the week showed how much markets still expect more intervention from the Federal Reserve. The Treasuries rally on Friday showed how much markets may still need it.
The latest Federal Open Market Committee meeting minutes indicated little interest among policy makers for further bond-buying programs or other stimulus measures. The release of the minutes on Tuesday afternoon sent stocks reeling and launched Treasury yields skyward.
In the absence of other more immediate stimuli, markets still look to the Fed for direction and guidance and, yes, stimulus. And why not? The past few weeks saw a sustained upward move in Treasury yields that was immediately followed by a series of unusually public speaking engagements by Fed Chairman Ben Bernanke, who used his rostrum to downplay the strength of the economic recovery and insist that still-fragile labor markets need rates to remain low.
Bernanke received a measure of validation when the Labor Department released some dreary March employment figures on Friday, with the U.S. economy adding 120,000 jobs last month, well below the 203,000 consensus expectation. That put a late-week bid into Treasuries, pushing yields as low as 2.044% Friday while rekindling hopes that FOMC members might reconsider their anti-stimulus stance.
The stimulus question is meaningful at a time when bond investors already fear an impending end to the three-decade bond bull market. Treasury yields have scraped along the bottom of their historical range for the past five months, and in the long run there's seemingly nowhere to go but up, which would erode the value of just about every type of existing bond portfolio.